“The intervention of the ECB? It saves time. Indeed a long time, because at least on paper the resources of a central bank are infinite”. But the positive notes, according to Professor Mario Noera, professor of law and economics of financial markets at Bocconi University, end here. Both on the source of European politics, "because the EFSF fund, still on paper, was in any case born with too limited resources to carry out its role: 440 billion when at least four times as much would be needed". Both, above all, because, in Europe as in the USA, the world is the victim of a major cultural limit, as well as a political one: "In the absence of a solution to the problem of the distribution of wealth, which for thirty years has ended up in profits that often are reinvested in assets that generate income, but end up in income, tax interventions risk driving the world into recession”.
A dilemma that affects the USA, Europe and also the pathologies of Italy "by now under police station". Still, the first reaction of the markets to the signals coming from Frankfurt was very positive. He does not believe?
“It doesn't surprise me, just as the subsequent greater caution does not surprise me. The signal was undoubtedly strong above all because this time the Bundesbank did not oppose the intervention in favor of Italy and Spain. It is easy to understand that this is the result of an underground negotiation which forced the embarrassing press conference on Friday evening on the Italian executive to guarantee the authenticity of certain commitments”.
Why so much skepticism?
“If we limit ourselves to the Italian case, they are really far from any solution. We are faced with a heterogeneous package of measures: some are of dubious utility and in any case uncertain both as to how and when. Others, namely the constitutional reforms, of dubious practical effectiveness. Basically, the only real change concerns bringing the break-even forward to 2013, with procedures yet to be verified. But, apart from these perplexities, it is worth making a more general consideration, which concerns both Italy and the USA or Europe: the real problems have yet to come home to roost. And, due to our cultural delay, dissolving them will be really difficult".
The difficulty of reacting to the crisis stems from a cultural gap, then?
“There is no theoretical recipe for getting to the bottom of the main problem: how to deal with the problem of growth, which everyone is talking about, in a context of debt”.
The orthodox solution sees debt as the main obstacle to growth. Hence the need to attack the debt.
“But if this happens in a framework of fiscal restrictions, the conditions are laid for a long stagnation incompatible with development from which new tax revenues can derive. This sets off a vicious circle.”
To get out of it, it would take capital from outside. Those of China, of course.
“It is not enough to receive capital. There must also be investment opportunities. The capitals of creditor countries, when they end up financing the debt, serve to stabilize the financial markets. But in this way the premises are not laid for creating income in the future. The problem is not solved if the issue of relaunching demand is not tackled".
We need a new Keynes, in short?
“It is necessary to study what the conditions are to allow demand to take off. Yes, it is worth rereading Keynes, but above all rediscovering the neo Keynesians, from Kaldor to Kaletsky who have tackled the problem of the creation and distribution of income over the long term. Income distribution is the fundamental problem: any financial recovery policy that moves from the compression of domestic demand makes no sense”.
In recent years, on the contrary, wealth has shifted towards the high end of the population.
“With the result of unleashing the bubbles and concentrating the growth of investments in the real estate sector alone, where the income is concentrated”.
The ECB's recipe doesn't go in the gusta direction, then?
“For heaven's sake, they are all correct, indeed necessary, prescriptions. It is important to implement measures that favor the efficiency of businesses or more flexibility in labor costs. But measures on the supply side alone are not enough”.
It is not a comforting picture.
“I agree. But the only possible alternative, if domestic demand does not take off, is a very aggressive policy on the export front, which requires, contrary to what is happening today, a weak exchange rate for the euro. Which is in conflict with the philosophy of the Bundesbank. It is not just a European problem. In the US it has taken on the flavor of a class conflict: the opposition of the Tea Party and the Republican Party has a political character. The American stalemate, as Standard & Poor's rightly noted, is political in nature”.
And Obama looks too weak.
“It is the opinion of the markets. In reality, to counter the current situation, public spending had to be increased and a fiscal path identified over time. The opposite of what is happening”.
Meanwhile, the markets have run out of momentum at the start of the session. His skepticism seems justified.
“Markets don't make politics, but they like coherent solutions. A fiscal consolidation that does not address the problem of distribution inevitably leads to a "double dip", i.e. the risk of a recession which is clearly evident in the eyes of financial operators".
Yet the ECB's intervention marks a historical discontinuity. Is that a step forward or not?
“Let's say that the path chosen by Europe is the right one but the EU has taken it too slowly. The European fund must intervene quickly and with adequate means, which presupposes unity of intent and fiscal choices. In the absence of this strategy, the only common institution, i.e. the European Central Bank, had to move. And that's not a good thing."
Why?
“Because the markets may appreciate a replacement as long as it is limited in time. Otherwise the ECB, which aims to control inflation, risks losing the reputation it has built over the years”.
